World hungers for commodities

COMMODITIES are heading for their best first half in 35 years, but the next six months might not be as rewarding.

Record prices for oil, copper and a dozen other raw materials might crimp consumption and encourage growth in supply.

The 19 commodities in the Reuters/Jefferies CRB Index jumped 29 per cent this year, the most since 1973 and more than any second-half gain in at least five decades, data compiled by Bloomberg show.

High costs are slowing the pace of demand for petrol in the US, and gold purchases in India, the biggest buyer, plunged 50 per cent from a year earlier.

Producers are expanding supplies of wheat in the US and steel in China.

"We're near some kind of reckoning in commodities," said Michael Aronstein, president of Marketfield Asset Management, who returned 15 per cent a year in the 1990s managing commodity investments.

According to Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ, high energy costs would deter consumers and reduce second-half prices, after oil doubled in the past year to a record $US142.99 ($A147.12) a barrel last Friday.

Demand is slowing for copper after the metal jumped 28 per cent this year and reached $4.2605 a pound May 5, the highest ever, partly because of temporary supply disruptions in Chile, Peru and Mexico.

China has announced its copper imports fell 19 per cent last month to the lowest since August.

London-based UBS AG analyst John Reade said gold demand from jewellers, the biggest users, had stalled since September. After reaching a record $1033.90 an ounce on March 17, gold would average $850 this year and $750 next year.

Meanwhile, price gains that curb demand are encouraging producers. Katanga Mining has restarted the largest underground copper mine in the Democratic Republic of Congo.

The Lisbon-based International Copper Study Group has forecast a supply surplus this year and next.

The world's wheat farmers will boost production by 8.2 per cent to 658 million metric tons in the next 12 months, the International Grains Council said last week.

Wheat jumped to its highest price ever in February and output is gaining as economic growth slows.

The UBS Bloomberg CMCI Index of 26 commodities rose 32 per cent this year to a record through to June 27.

Indices linked to commodities took in an unprecedented $235 billion as of mid-April, according to Lehman Brothers Holdings.

The expansion is now slowing. Second-quarter net inflows into European exchange-traded products linked to commodities fell about 58 per cent to $800 million from the previous quarter, Barclays Capital said.

And the World Bank has warned that 33 countries from Mexico to Yemen faced unrest because of higher commodity costs.

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World hungers for commodities